28.12.2018 — Federal Law on Procedural Reform Enters into Force in 2019

Vladimir Putin signed the Law on the so-called “court procedure revolution” in Russia that touches upon different aspects of civil and arbitration procedure. The Federal Law provides that only attorneys shall represent parties in litigation, simplifies the rules on transferring the case from the court of general jurisdiction to arbitrazh court and vise versa when the claimant determined jurisdiction incorrectly and introduces a declarative order for issuing writs of execution. The Federal Law will come into force after new courts in the system of courts of general jurisdiction will be established – the independent five appellate and nine cassation courts.

On 28 November 2018 the Russian president Vladimir Putin signed the Federal Law No. 451-FZ “On the Introduction of Amendments to Certain Legislative Acts”. Among other changes, this Federal Law also amends the Civil Procedure Code, the Arbitrazh Procedure Code, the Administrative Procedure Code and other legal acts concerning judicial procedure. From October 2017, when the idea of reforming the judicial procedure was firstly proposed by the Plenum of the Supreme Court, the draft Federal Law has undergone numerous changes. Eventually the following significant statutory innovations were introduced in the final text of the Federal Law.

After the Federal Law enters into force, the representatives of parties in litigation in the courts of general jurisdiction and arbitrazh courts shall have a degree or a PhD in Law. This requirement does not apply to statutory representatives (e.g. insolvency officers, patent attorneys) and representatives in the cases considered by magistrates’ courts and district courts.

Within the framework of delineation of jurisdiction between the courts of general jurisdiction and arbitrazh courts, the procedure of transferring the case between these two court systems was significantly simplified. Now, if during the consideration of the case the arbitrazh court finds out that the case must be adjudicated by the court of general jurisdiction, the arbitrazh court will not dismiss and close the case, but will transfer the case to the appropriate court. Similarly, the court of general jurisdiction will also have to transfer the case to the arbitrzh court on the same grounds.

The Federal Law also introduces the new procedure of issuing writs of execution, according to which it will be issued only following the respective application (except the cases on the recovery of funds to the state budget).

The above-mentioned amendments will come into force on the day when the new appeal and cassation courts of general jurisdiction are established as part of the reform of civil procedure. Establishment of separate appellate and cassation courts will promote for their independence in comparison with the situation when appeals are considered by the same court or by a different court located in the same city or town. The exact date of establishing these new courts shall be determined by the Plenum of the Supreme Court no later than 1 October 2019.

27.12.2018 — Supreme Court Considered When Eviction of Tenant May Be Qualified As Abuse Of Rights

The municipal authorities terminated the lease agreement with the tenant (a law firm), offering them to renew the agreement on new terms, particularly, the amount of rent doubled. However, the tenant refused to vacate the premises. Therefore the landlord filed the claim to evict the tenant. The lower courts were of different views on the situation, and the case reached the Supreme Court. The Supreme Court ruled that the termination of the lease agreement concluded for an indefinite period was the statutory right of the owner. Therefore such actions should not be qualified as abuse of right. Besides that, the Supreme Court noted that the courts should also consider the social value of tenant’s activities, the fact that he has no other premises suitable for relocation, and take these factors into account to make a final decision during the new trial.

In the recent case No. A32-8/2018 the local authority filed a claim against the law firm on the dispossession of the premises from the tenant and on the recovery of the rental payments. The lease agreement was concluded for a five years term; however, it has been never registered in the public register. When the term of lease expired, the municipal owner suggested that the lease shall be renewed with the substantial increase of rent. The tenant objected to the increase of rent, and entered into negotiations with the landlord while the tenant continued to pay the lower amount of rent.

Several years after the landlord demanded that the tenant vacates the premises. The law firm refused to vacate the premises, so landlord filed a lawsuit for the dispossession of the premises from the tenant and compensation of losses in amount of the increased rent. The decisions of the courts on the matter differed. Firstly, the courts granted the claim in full, however the cassation court remanded the case for a new trial. During the new trial the courts dismissed the landlord’s claim, assuming that the lessor’s unmotivated termination of the contract, which was prolonged for an indefinite term after the lease term had expired, constitutes an abuse of rights, since his original motives were not aimed at vacating his property, but at making the lessee pay the higher rent.

The landlord challenged these decisions to the Supreme Court that reversed the decisions of the lower courts and remanded the case for a new trial. The Supreme Court stated that since the landlord informed the tenant in advance on termination of the lease agreement renewed for the indefinite period, the motives for such termination are irrelevant and, therefore landlord’s actions should not be qualified as abuse of rights. However, the Supreme Court instructed the lower courts to make a final decision taking into account the social importance of the tenant’s activities (delivering legal services on a gratuitous and preferential basis) and the fact that the tenant has no other premises suitable for relocation.

26.12.2018 — Party Need Not Prove Facts Established in Termination Agreement

In one of the recent cases the state customer and the contractor signed the agreement on termination of the contract before the price for the works performed was paid in full. Relying on the customer’s assurances that the remaining part of the price will be paid next year, the contractor came to terms with the state customer and for the purposes of customer’s annual financial reporting the contractor stated in the termination agreement that he had received the payment for the works in full. In the following year the state customer refused to pay the outstanding amount of the purchase price. Herewith the Supreme Court rejected the contactor’s claim for the recovery of the debt. The court referred to the fact that the payment for the works had been confirmed by the parties in the termination agreement, therefore the court has no right to re-verify these facts, and the customer does not need to present additional evidence to prove them.

In the case No. A84-1117/2016 the parties to the construction contract signed the termination agreement. At the time of the termination of the contract, the works under the contract were not fully paid. However, the parties stated in the termination agreement that the contractor had received the payment for the works in full because the state customer had assured the contractor that it was necessary for fiscal purposes and that the rest of the payment will be made early next year. Nonetheless, the state customer did not hold this promise, and the contractor filed a lawsuit on the recovery of debt. The lower courts sided with the contractor and compelled the state customer to pay the debt under the contract.

However, the Supreme Court disagreed with the opinion of the lower courts and refused to grant the contractor’s claim. Particularly, the Supreme Court ruled that the parties were free to establish the terms of the termination agreement, and for this reason the customer should not prove that he had paid for the works in full, as it follows directly from the termination agreement, which has not been challenged by the contractor.

Thus, it is recommended to the parties to be accurate when formulating the terms of the agreement, especially when it comes to reflecting the factual background in the contract (e.g. whether the payment has been made), and to state only the true facts.

25.12.2018 — Supreme Court: If Court Has Declared Sale of Land Plot Illegal, Claim for Demolition of Buildings Thereon Shall Be Granted According to Prejudicial Rules

In the case recently adjudicated by the Supreme Court the issue on demolition of unauthorized constructions arose, after the court had established that the respective land plot had been sold unlawfully and in fact belonged to the public authorities. Having received the decision of the court on vindication of land plot from the buyer, the local administration filed a claim for the demolition of the structures built thereon. The courts were of different views on whether the claim for the demolition shall be granted, and the case was finally resolved by the Supreme Court. The Supreme Court explained that since according to the earlier decision of another court the land plot belonged to the local administration, and the buyer had no title to the land plot, the building thereon is unauthorized construction subject to forcible demolition.

In this case (case No. 46-КГ 18-34) the buyer purchased the land plot and constructed buildings thereon and registered his title in the state register. Later on it was discovered that in fact this land plot was part of another land plot owned by the local authorities. The local administration filed the claim to the court and vindicated the disputed land plot from the buyer. The court decision also stated that the buyer had no title to the land plot in question. Thus, the local administration filed claim to the court on demolition of constructions thereon referring to an earlier decision of another court declaring that the buyer had no title to the land plot. The court of the first instance agreed with the local administration’s arguments and granted the claim. The appellate court reversed the decision of the first instance court, referring to the fact that when the buyer constructed the buildings in question, he owned the land on legitimate grounds, moreover, the local authorities were not using the land plot for intended purposes, and furthermore the issue on demolition of building had not been examined by in the decision of another court on the vindication of the land plot.

The Supreme Court sided with the local administration and reversed the decision of the appellate court, explaining that the decision of the appellate court contradicted to an earlier decision of another court that confirmed the local administration’s ownership title to the land plot and had a prejudicial effect. With such instructions the Supreme Court remanded the case for a new trial.

24.12.2018 — New Rules for Employment and Invitation of Foreigners Come into Force in 2019

From the beginning of the next year, the companies that invite foreigners to the Russian Federation will have an obligation to procure that the invited foreigners comply with the purpose of visiting Russia and leave the country on time. Moreover, the Government has restricted the maximum allowed number of foreign employees in various business sectors, including the construction sector. Non-compliance with these rules will result in significant fines.

In accordance with the Decree of the Government of the Russian Federation dated 14 November 2018 No. 1365 that specifies permissible number of foreign employees in companies operating in different business sectors, the employers will have to bring the numbers of invited foreign workers in line with the new requirements before 1 January 2019. Primarily, the changes will affect the companies operating in construction, trade and transportation sectors. In particular, the number of foreigners employed in the construction sector shall not exceed 80% from aggregate number of employees (still, this restriction is not applicable for the employers from Moscow, Khabarovsk Krai and Amur Oblast). Non-compliance with these rules will result in significant fines for the employers in the amount from RUB 800,000 to 1 mln (EUR 10,000 – 12,700).

Besides that, from 16 January 2019, the rules on the inviting party’s obligation to control the activities of the invited foreigners will be tightened up. According to Russian law, the inviting party shall procure the foreigners’ compliance with the declared purpose of visit and ensure that they leave the country in time. The Government will develop the specific measures obligatory for the inviting parties. The company’s failure to comply with these measures will lead to fines ranging from RUB 400,000 (EUR 5,100) to RUB 500,000 (EUR 6,300).